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Thursday, June 30, 2011

There's two you hear together a lot these days. But what do they mean? Are they just two phrases for exactly the same thing, or do they have separate meanings?

"Bailouts:" is a term that we use for giving everybody's money to the Banks, to keep them from going bankrupt. We don't bail out drug store chains. We don't bail out computer companies. We only bail out banks. Of course, you hear a lot about bailing out Governments, but what this always means is bailing out the government's banking system. When we say we're bailing out Greece, for example, we mean we're bailing out Greek Banks and German Banks and French Banks and US Banks that lent money to the Greek Banks.

But wait, I thought the banks were still bankrupt after the bailouts!

Yes, they are, but if we "kick the can down the road long enough maybe they'll recapitalize." (See euphemism number 2)

There are lots of ways to give our money to the banks. We can just donate huge amounts of taxpayer money. The Fed can "Lend" untold amounts of taxpayer money at ZERO percent interest, that the banks never have to give back. Or the Fed can take Bad Debt off the Banks balance sheet and charge it later to the taxpayers. Clever one, Tricky Fed!

Everybody Hates Bailouts, except the Bankers, who love Bailouts because they mean they can keep paying themselves about 270 times what everybody else gets paid in the economy. But they deserve it because they're so smart nobody else could possibly do their job of bankrupting their own businesses and entire economies.

But what about "Austerity Programs?" Everybody Loves Austerity Programs, right, because they are Responsible. And they will get the Economy Moving, right? But what are they?

Austerity programs are what the Bankers (and politicians owned by the bankers) say the taxpayers must do if they want the privilege of donating their tax money to Bail out the Banks.

You see, if we want to give our money to the Bankers we all have to tighten our belts in other areas. Makes sense, right? Austerity programs are made up of: A) Massive cutbacks of services and layoffs of public servants like Teachers, Police, Firemen, Garbage Men etc. And B) Higher taxes for everybody.

Theoretically Austerity Programs should involve cutting all wasteful areas of government: in other words, policing the corruption in Government. But asking corrupt politicians to police political corruption doesn't always work well. So, all that gets cut are services to poor people and the middle class. Because they're too weak and dumb to complain. And if they do, who cares?

Wait, you say the middle class can vote out the corrupt politicians? Yes, but they always replace them with other corrupt politicians who are also owned by the banks even if they pretend not to be. That's why Barack Obama's economic team is dominated by Goldman Sachs lackeys, just like George Bush's economic team. Those guys sure sound different when they talk - but their policies are identical. Maybe next year we'll re- elect a new George Bush just to shake things up!

Of course, Austerity also involves higher taxes. Though you can raise taxes all you want, but those who can afford expensive lawyers still won't have to pay any taxes. So basically you raise taxes on the poor and middle class.

But wait, don't politicians talk about raising taxes on the wealthy?

They sure do. That's called class warfare (another great euphemism!). That makes the wealthy take all their money and put in into tax shelters outside the United States. So really, it doesn't raise much money for the US banks, so what good does that do?

No, no best to leave the rich alone. If we want to keep bailing out the banks we really need to implement some effective Austerity programs.

Wednesday, June 29, 2011

"Let's Kick the can down the road to give the banks time to recapitalize!"

You hear this one a lot lately. In fact it's two clever euphemisms rolled into one steaming helping of meaninglessness.

First "Kick the can down the road." This means: "We have no *f*ing idea how to solve this God awful mess. Maybe our kids can figure it out." Somehow this has become not just a plausible political solution for all sorts of problems, but in many cases a desirable solution: as in "Well, Paul, the best we can hope for right now is to kick the can down the road."

Try that one out on your own creditors when they come calling. "Tell you what, Mr. Banker, let's just kick the can down the road a while. Why don't you get back to me in a few years and we'll see what we can figure out then." In fact, it should work for any problem in every facet of life. Have a spending problem? Don't worry, kick the can down the road. Drinking problem? Don't worry, kick the can down the road. Hooked on smack? No problem. Apply it in in any situation. Get creative.

Now, the second part says, in this case, that we're kicking the old can: "In order to "Give the banks time to recapitalize." What does this mean?

It means the banks are *f*ing broke. Dead broke. A banks that is not capitalized is a bank that is broke. Get it? They have more debt than assets. They're broke.

How will they "Recapitalize?" How will the get Un-Broke? Well, if the same bozos that ran the banks into the ground are still in charge, chances are they can't. If the economies where they operate are not growing chances are even if you replace the bozos with smart guys, they still still can't because they're deeply in debt.

So what can be done? You fire the bozos and close the banks. Then new ones with real assets run by smart guys can grow.

But wait a second. What about all the other banks that lose money because they made stupid loans to the Broke Banks?

Yeah, they lose lots of money too. They might have to close too.

Gee, that means lots banks will close and lots of people will lose lots of money. We can't have that. So what should we do?

I know: "Let's kick the can down the road to give the banks time to recapitalize!"

Tuesday, June 28, 2011

There's a debate going on in Congress as to whether we ought to raise the "Debt Ceiling." This sounds responsible - if you're brain dead.

There's no such thing as a debt ceiling. We owe what we owe. Because of interest - the cost of borrowing money - the figure rises indefinitely and perpetually. There is no ceiling, unless you pay it off - or you default.

Debt ceiling is a euphemism for "Let's just not pay our debts - that'll show everyone how responsible we are." The fact that they are debating that seriously in Congress is chilling.

If you borrow a hundred bucks on your credit card, then the credit card company says you owe us 115 because of interest, you could try to say, "Well my debt ceiling is 50 bucks - sorry, but I voted not to raise it. So that's all I can pay you." See how that goes over.

Here another one: "Deficit Spending." Why don't you try that one at home. Broke? So what - just do some "Deficit Spending." How? Well the time honored method is to go to some friends and relatives and hit them up for money. Then spend it.

When the Government does it they're borrowing it from their own children. That's us. We're all borrowing from our kids. To finance our own consumption and retirement. To police Iraq, Afghanistan and Libya.

Each and every child in this country is now responsible for tens of thousands of dollars of national debt. If they want to go to college they'll come out with hundreds of thousands of personal debt.

Saturday, June 25, 2011

If you hadn't noticed, everyone dies. Everything dies. Life is one long constant losing struggle against Death and Destruction.

Sounds dreary, pessimistic, self-defeating, right? Certainly to modern Greeks, Americans, Europeans, who have all bought into the Hollywood fantasy that a successful life is filled with comfort, glamor, and loads of vacation time.

But not so the founding fathers. Not so Jefferson and Ben Franklin and John Adams - and George Washington. They embraced the ethos of Death and Destruction. They loved and revered Greek Philosophy. After all, they didn't invent Democracy (Grk: Kratos: Power to the Demos: People.) and they didn't invent Capitalsim (Grk: Kephalos: Head, Mind syn: Kratos: Power.) They rediscovered these institutions by studying Greek thought and philosophy - in Greek.

The ancient Greeks invented both these systems. And both were intended for the same purpose: to lend dignity to Man in his perpetual losing struggle to the inevitability of Death and Destruction.

Now, I know it's fashionable amongst dimwits to call Plato a Tyrant, and to point out that the Greek Demos didn't include their slaves, and even many scholars will point out that there was no sense of Capital in the ancient economy in the way we moderns view Capital as something to hoard in order to keep score as a measure of wealth and success.

Granted.

But my point here is that the power to behave correctly in the course of human struggle (Ortho-dokeo: orthodoxy) to the Greeks was intimately tied with the two institutions they invented to give dignity to this struggle.

First, through Democracy, man could persuade his fellow man to act through the eloquence of argument, rather than the force of arms. This conveyed an essential dignity to the Struggle by exalting the life of the Mind over which the indignities of Death and Destruction have no dominion.

Second, by creating a Common Currency: Gold that could be amassed, used and disbursed by every man according to his own ingenuity, foresight and perseverance, lent dignity to the Struggle by once again exalting the life of the Mind, over which Death and Destruction have no dominion.

In the end, of course, Death and Destruction always win out. But they have no power over the manner in which we conduct ourselves during the struggle. They have no power over the Noos: Mind, and the Logos: Reason: which are the guiding force behind Democracy and Capitalism - which to the Greeks meant a gold currency.

The strength of both Democracy and Capitalism however is dependent on both the ability of man to act with dignity and the understanding that dignity is all we have in the face of the losing struggle.

Take away humbling Struggle, take away the constant awareness of Death and Destruction, and you lose the concept of Dignity of Behavior. And, without Dignity in the face of Destruction there is no Democracy, there is no Capitalism as envisioned by the Greeks, and by the Founding Father of the United States of America.

Take away the struggle in the face of certain Death and Destruction and all you are left with is the Appetites of Man. The appetite for power. The appetite for wealth. The appetite for I phones, efexor and artisanal chocolate (I know, I like it too.) The appetite to screw your neighbor and grab as much for yourself as you can. The appetite for glamor, comfort and vacation time.

The artform the Greeks invented to compliment Democracy and Capitalism was Tragedy. In Tragedy, as I pointed out in the last post, the audience comes together to communally experience the downfall of a Vain Actor who struggles in vain against the tide of destruction. Dramatic Irony dictates that the audience understands that this struggle is doomed while the actor can not see it. The actor is blinded by the quest to satiate his appetites. It causes him to lose his dignity. In doing so, he loses everything.

So maybe consciousness of Death and Destruction isn't so dreary, pessimistic and self-defeating after all. Certainly not nearly as dreary as life is proving to be without it.

Wednesday, June 22, 2011

Greece is about to default on 150 billions euros of debt. Will they or won't they? What is going to happen? Can the European Union avert this disaster?

This is the modern way of looking at the unfolding Greek Tragedy. It is built on the modern predilection for "Suspense." Suspense leads us to believe that a series of twists and turns will unfold, built on choices made by the central character. Flawed characters will make flawed choices, strong character make strong choices. This gives power to the illusion that Humans are in control.

It betrays a fundamental misunderstanding of Tragedy.

According to the principles of Tragedy: Greece is currently in Default. The whole audience knows Greece is in default. The unfolding drama that ensues is a matter of watching the actors (The Greeks debtors and the world banking system that lent them the money) struggle mightily against the inevitable conclusion: Disaster, Ruin, Death

This is the principle of Dramatic Irony. The audience understands the situation in the way the actors can not. It reflects the idea that Humans are not in control. There is a Divine Order. All we can do is hope not to upset it. Our hopes will be in vain. Because man is Vain.

Man's vanity, Hubris leads him into constant struggle to assert his will over the human condition. He does not realize that the human condition is struggle: Polemos.

Modern man has turned even the word into a virtue. We call it Passion: a quality to be admired and emulated. The word means struggle: a condition to be suffered - at best, with dignity.

Well, gold is for those who see the world in terms of Greek Tragedy, rather than Hollywood drivel. Gold is for those who see Greek Drama, the European Drama, and the unfolding US drama in terms of Dramatic Irony rather than Suspense.

These are Dramas in which the conclusions are known. They can not be averted. They have been written into the script in accord with the laws of human nature. All we can do is prepare for the inevitable. And hope to derive a measure of catharsis.

I will say - from a purely modern perspective - that Catharsis is a whole lot easier with a little gold in vault.

Tuesday, June 21, 2011

…support seems to be coming from the physical gold market, especially Asia. Thissegment of the gold market has been buying gold [on] dips for the past few weeks, andthis trend seems entrenched. In fact, we have seen exceptionally strong physical golddemand so far this year (compared to the same periods in 2009 and 2010).

He also notes from Reuters that The import of gold and silver by India hasrisen by a whopping 222% between April and May 2011, as compared to a year ago. In themonth of May alone, imports were a staggering $9 billion, with gold demandgrowing 25%...Imports of gold and silver were at $8.96 billion in May, a growth of500% over the previous month

Monday, June 20, 2011

Much has been made in recent weeks of George Soros sale of his GLD. What most commentators are missing is that George Soros did not sell an ounce of Gold. He sold a tracking stock the tracks the price of gold. He is not so stupid as to confuse the two. Nobody knows how much Gold he is holding. He's not likely to divulge that information. He is not obliged to do so.

The only reason he admitted to selling the GLD is that his trade can be tracked and would have come out anyway. And it's to his advantage to have others panic and sell too. That way he can buy it back cheaper. After all, it's a trading vehicle. It should be traded often, as eventually it may become worthless.

So what then is the difference between physical gold and a tracking stock that tracks the price of gold? Don't the prices move in tandem?

The answer is that they move in tandem as long as the markets remain orderly. That is to say: as long as the markets command the confidence of global investors. Which is to say: as long as the currencies in which the markets are priced retain the confidence of global investors.

If you happen to feel like that should be the case for the foreseeable future then GLD is the trading vehicle for you.

The moment the markets - or the underlying currencies lose the confidence of investors - for any reason at all - invent your own - then the price of Physical Gold will decouple from the price of the tracking stock GLD.

We have already seen that Gold stocks have ceased to track the price of gold. This has been the case for much of the bull market in physical gold. Why? Because stocks are another form of paper gold. And I should point out that there is an ongoing crisis of confidence in paper - in case you've missed it. (Some analysts point out the during the Great Depression gold stocks performed well. But that was because bullion was outlawed. This will not be possible this time around.)

This crisis of confidence may be temporary. Or it may intensify. And eventually it may become a full fledged panic out of paper.

At that point if you do not own physical gold it will be too late to buy it in any meaningful quantity.

If you're not at all worried that that point will ever arrive then there's no reason on earth to buy physical gold.

Sunday, June 19, 2011

Greece, through hubris, lives like a nation of Gods for several decades, financed solely by debt. They eat like Gods, They party like Gods, They live in palaces like Gods. Yet they are only people.

Greece is broke. Greece is in default on over 150 billion euros. Hard to know exactly how much since the Deus Ex Machina, Goldman Sachs, helped them hide a lot of debt in the form of currency swaps and derivatives that they sold to banks all over the world including the US. Thanks Goldman Sachs!

The Heads of State (Kings) of European Union meets all weekend to find a dramatic production that they can perform on the World Stage that will keep the Greek Default in the realm of Theater with only imaginary repercussions for the Real World Economy.

How can they do this? Well it will take some fantastic Stage Craft to make the World Economy adopt its continued stance of WILLING SUSPENSION OF DISBELIEF.

The best hoped for outcome here - since Greece can NEVER pay back this debt - is for the banks to come out and say: "That was a great performance, we thoroughly enjoyed it and look forward to another entertaining Encore Performance next month which we're sure will be equally delightful. Meanwhile we Banks, along with the Central Banks and the Happy Leaders of Greece agree that the Problem has bee Solved! Greek Debt has been RESTRUCTURED! (At least for now.)

Then the Investment Banks like Goldman Sachs can run up the Stock Market Futures overnight on the great news, and the financial markets ILLUSION OF HEALTH is preserved.

HURRAY - BRAVO - ENCORE shout the people of the world.

All of course, but the PEOPLE OF GREECE. They do not enjoy this Theater - because they are suffering a real Tragedy. They are now all out of work, starving, angry. And this Theater doesn't help them borrow any more money. In fact it demands they accept the "Austerity of the Gods."

But they don't want to. Oops.

While the world rejoices they riot.

And then a little known reviewer called Fitch Ratings says that a rollover of Greek Debt would prompt it to cut Greece's sovereign rating to “restricted default.” The bonds themselves would still avoid default and be left at “a low non-investment grade probably in the region of CCC,” it said.

BOO! Cry the World Audience. Spoilsports!

And then the market euphoria wears off. What if it's not all just entertaining Theater? They wonder. What if Greek Debt really is downgraded to NONPERFORMING. Then doesn't somebody actually LOSE MONEY? BUT WHO?

And what about Italy? What about Spain? What about Portugal? What about Ireland? They all cry. And what about Japan? And how are any of those places different from the United States?

Suddnely the Theatrical Production appears to have Real World Repercussions.

And eventually the World Leaders meet back on the World Stage - and nobody cares about the Stagecraft of their Theatrical Production.

Saturday, June 18, 2011

The above chart is courtesy of John Williams' Shadowstats. It shows the government CPI (consumer price index - or cost of living measure - or INFLATION GAUGE) versus a CPI that strips out government metrics that have been added to the CPI index over the last forty years that are intended expressly to depress the index.

Oh come on, why would the government do that?

The government has a large stake in depressing CPI because it is the measure of inflation used A) to Depress GDP figures and B) to depress Retail Sales figures. In other words how much of GDP and retail sales is just rising inflation - these, in turn, are the gauges that Wall street uses to gauge Stock Market Valuations - as well as the figures the government uses to calculate the level of mandatory increases in transfer payments (Medicaire, Social Security etc.).

In other words the government has decided it has a huge stake in promoting the APPEARANCE OF PROSPERITY.

How? There as so many ways to massage statistics. The basic tools are using metrics that "Smooth out" the statistics like "seasonal adjustments," (guessing how much better the numbers would be but for temporary factors) "Hedonic adjustments" (guessing how much better the numbers would be if they could take into account improvements in products that don't show up in the price), simply adding in guesswork that improve the figures (Brith/Death models) and finally simply removing cost of living metrics that continually rise like education and health care - and energy - and food - etc.

Let me ask you a question: Are you alive?

If so you've probably noticed the relentless rise in you own cost of living.

So what does this have to do with gold?

Look at the two chars above and you can see that gold has moved with the the relentless rise in consumer inflation. The one break in the chart occured during the banking crisis of '08.

This begs the question of what will happen if another banking crisis permanently depresses these figures if it morphs into a depression.

The answer is that nobody knows. Chances are good that gold will become depressed with everything else. Though it should retain its relatively strong value.

The question is what happens in world government repsonse to this event.

The odds are very high that governments worldwide will fight the depression by printing as much money as possible. Why? That's all they know how to do. It's all they've ever done over the last century to fight any sort of financial disruption.

This means that at some point during the crisis there will be a tipping point at which there will be a Crisis of Confidence in paper. It will appear to happen quickly and suddenly. though the roots of that crisis are forming right now. The Tea Party, whatever you might think of them are a manifestation of a mass loss of confidence. So are riots in Greece, Spain, Italy, Ireland. Imagine these riots happening here for the same reasons they happen there.

Once it happens the gold price will shoot up. And at that point it will be nearly impossible to buy physical gold.

Buy a little now just in case this fantastic scenario is not so fantastic after all.

Thursday, June 16, 2011

The markets were taken by surprise yesterday by the rioting in Greece. So much for the theory that the markets look out into the future. They certainly can't see very far if they missed that one.

Why are they rioting in Greece? Well, Gee, with real unemployment up at around 40 percent, and an economy that's in deep recession - if not depression - it's the European Central Bank's idea that what Greece needs is a good austerity package.

Why do they think that? Because that's the only way they can restructure Greek debt, thus creating commissions for the bankers who lent the Greeks money when they should have realized there was no way the Greeks could ever pay them back (including serveral huge US banks like Bank of America) - not to mention more commissions for the banks that helped Greece hide its debts through derivatives - like Goldman Sachs.

You see, the banks love problem loans. Good loans that get repaid quickly are not very profitable. Problem loans that need to be endlessly restructured at higher and higher rates - and fees - are the mother's milk of bank profits. That's why the banks keep making these bad loans. And if the loans go bad, then so what? The Central Banks will just bail them out. And the Tax payers will pay.

Somehow the unemployed starving Greek workers don't agree. They think that Greece should default and the banks should eat it.

"Don't worry" says the head of Barclay's Global Strategy on CNBC this morning (same guy who helped run Lehman Brothers into the ground). All we need to do is "Kick the can down the road a few years to give the European banks time to recapitalize." What does this mean? It means that the European Central Bank just has to have time to print the 2 trillions dollars needed to help the banks absorb all the bad Greek debt along with counterparty defaults that will ensue as the Greeks repudiate this debt. He's just worried if it happens too quickly and the Central Banks need to print all that at once there could be a loss of confidence.

But he's not worried. According to Lehman Brothers - I mean Barclay's Capital - there's no problem so big that it can't be kicked down the road.

And what about Spain, Portugal, Ireland and Italy? Gee, that's a lot of cans to kick down the road. But don't worry the market's looking out into the future. It's already discounted all that. Right?

And what about the Zombie banks here in the US that still carry trillions in bad mortgage debt on their books? The market's already discounted that too. Right?

Wednesday, June 15, 2011

Anyone following the Greek Gold knows that the prices for high quality coins have blown out over the last year. Three years ago the above pictured portrait stater of Alexander The Great dating to about 334 BCE sold regularly at auction for around 5-7000 dollars in near mint state condition. It is a rare coin. Perhaps 50 exist. Yet they used to appear at auction 3-4 times a year.

Now the last two coins in this condition to reach the market over the last year sold for 25,000 and 35,000 respectively. While, it's clear that this phenomenon is not limited to rare gold coins - we see it in a range of art commodities: Chinese art, Old Master Paintings, historic documents, high grade gem stones etc. etc - I view rare gold coins as a leading indicator for the gold market in general.

Why? Inelasticity of supply.

Right now, smart money the world over is seeking to change paper into hard assets. Everybody is worried about paper as an adequate store of wealth. And rightly so. One place that paper money flows is into objects that are perceived to represent cultural heritage.

For almost every country on earth except the United States ancient gold coins are representative of cultural heritage. Of course, even in the US some people can understand the Greek culture lies at the root of American art, language, philosophy, political organisation. But for countries with longer histories - and a stronger appreciation of education (almost every other country on earth) - the recognition that ancient culture lies at the root of modern culture seems obvious.

So there is a natural movement for those who understand gold as money to seek out the most ancient specimens. And there the supply is very limited. So it is natural that these ancient gold coins are being bid up at a much faster rate than modern bullion gold coins.

Yet.... Even modern bullion gold is in relatively tight supply. Relative to what? Paper. Paper is in near unlimited supply. There is currently about 4 trillion dollars of gold - including all the gold ever mined. World GDP stands at about 60 trillion a year. World financial assets are now measured in the quadrillions.

My point is this: The ancient gold market is being overwhelmed by demand. But the modern gold market is still tiny compared to the world financial asset market. It would only take another panic like the one we saw in 2008 to create the same inelasticity we see in the ancient gold market.

Tuesday, June 14, 2011

What's wrong with this picture? If you said that Sarah Palin and Thomas Jefferson can't be reconciled no matter what type of contorted photoshop logic employed, you're right.

There's an absurd and dangerous strand of republicanism masquerading as conservatism that asserts that words don't matter. Pretty words and speeches have no real substance. They're for eggheads and out of touch ivy-leaguers in their ivory towers. Plain speaking people don't care about words.

Now, forget for a moment that the entire point of Democracy as conceived by the Greeks was that citizens should persuade one another through force of words rather than force of arms.

Forget that this idea that words - not swords - should have the power to inform political decisions was the most radical conceptual innovation in the history of thought.

Forget that this love of words led to a blossoming of the ancient Greek language so that there were dozens of words to describe "thought" and the process of thinking - in all it's myriad manifestations.

How about considering the fact that the "founding fathers" like Thomas Jefferson were obsessed with Greek thought and language. (See the letter below.) Every word Thomas Jefferson used in both writing and speech was thoroughly informed by his understanding of the Greek and Latin roots. Thomas Jefferson loved words. Is it really possible to understand anything this man wrote - including the declaration of independence - without understanding the words in the way he understood them? Is that possible without studying Greek and Latin in depth?

Of course not.

When he writes that the truths of life liberty and the pursuit of happiness are self-evident do we really know what he means? Sure, it sounds obvious. We all know what liberty is, right? Close your eyes and give a definition - without using synonyms like "free."

Not so easy right?

Are you aware that in Greek the root for "speaking" is the same root as for "freedom" and "reality." Thomas Jefferson knew that. He spent a lot of time thinking about it. Can you understand what he wrote if you don't put in the same amount of thought?

Okay, that's not to say you can't understand anything if you don't know some Greek and Latin. Lot's of successful computer programers, athletes and plumbers and electricians can perform their work just fine without it.

But it is to say that shouldn't we expect that much from our political leaders? Shouldn't we expect that much from those who seek to persuade us through force of words? Shouldn't we expect that much from those who seek to interpret and employ and enforce the words and thoughts of the founding fathers? Shouldn't we expect that much from the guardians of democracy?

THOMAS JEFFERSON'S LETTER:

To Judge Spencer Roane Poplar Forest, September 6, 1819

I thank you, Sir for the remarks on the pronunciation of the Greek language which you have been so kind as to send me. I have read them with pleasure, as I had the pamphlet of Mr. Pickering on the same subject. This question has occupied long and learned inquiry, and cannot, as I apprehend, be ever positively decided. Very early in my classical days, I took up the idea that the ancient Greek language having been changed by degrees into the modern, and the present race of that people having received it by tradition, they had of course better pretensions to the ancient pronunciation also, than any foreign nation could have. When at Paris, I became acquainted with some learned Greeks, from whom I took pains to learn the modern pronunciation. But I could not receive it as genuine in toto. I could not believe that the ancient Greeks had provided six different notations for the simple sound of {i}, iota, and left the five other sounds which we give to n, v, {i-i}, {oi}, {yi}, without any characters of notation at all. I could not acknowledge the {y}, upsillon, as an equivalent to our {n}, as in {Achilleys}, which they pronounce Achillevs, nor the {g}, gamma, to our y, as in {alge}, which they pronounce alye.

Sunday, June 12, 2011

If you understand what Quantitative Easing is you know the answer. As the Grateful Dead once sang: "I can tell the future: just look what's in your hand."

Quantitative Easing is a phrase that makes it sound as if a bunch of math wizards were sitting in a smoky room with slide rules and calculators performing a mystical calculus to tame the animal spirits of the economy.

Right now, it appears to every commentator and politician that whatever they've been doing, unfortunately hasn't worked. So they're all against it. "It" weakens the dollar. BAD. We all know we want a STRONG DOLLAR. "It" creates more debt. BAD. We all want LESS DEBT. "It" puts the Government in the markets. BAD. We all want free markets.

Let's let the markets work now! Free markets will heal themselves. Government out!

Okay. So what is "it?"

Do you know?

Quantitative Easing is when the Treasury - in order to finance our massive debt - issues Treasury Bonds - (yes more debt). And the Federal Reserve Bank of the United States prints money and gives it to the member banks so that they can buy this debt.

That's it.

What happens when it stops?

Well if lots of countries were all lined up to buy our debt - then nothing.

But unfortunately that is not the case. If nobody buys the debt our interest rates rise and the economy collapses. Because we can not afford to pay higher interest on our massive debt.

But that's not all. If the banks don't get money from the Fed to buy the debt, then the Banks have no money to put into the STOCK MARKET. Quantitative easing has been plowing money through the banks into the stock market. This creates a wealth effect. As stocks rise people who own stocks have more money and the economy appears to be doing well.

Get it? So when Quantitative Easing ends the Stock Market falls.

So guess what will happen? All those politicians and commentators will worry they will lose their jobs. Because when markets fall politicians get voted out. And when markets fall people stop watching Stock Market TV shows. So All those people who have been saying Quantitative Easing is BAD, will suddenly be demanding a new round of Quantitative Easing. Including the bankers who employ Ben Bernanke over at the Fed.

Friday, June 10, 2011

This lady is on a hit TV show where she plays a cool star CIA operative - with no experience or training! Still, she's great at it. And what legs! Following her in this network's lineup is a dude who plays a star lawyer - who's never even been to law school! He has great legs too - and a winning smile! Of course these dramatic shows have tremendous competition from the reality shows on the competing network starring real people with no education or skills - also with great legs and winning smiles - who compete for millions of prize dollars!

See how useless education, training and job experience is?

Over in the other Hollywood in Washington, we have a Republican presidential field led by two bona fide Reality TV show stars with little or no political experience - and one of whom has the added appeal of no real education or business experience, and the other of whom has managed to run an inherited real estate empire into bankruptcy - competing against a president with all of 2 years of experience as a chief executive before taking over the presidency who's trying to fix a broken economy with the help of a Chief Banker who's never worked a single day in a bank.

Gee, which TV lineup is less believable?

Meanwhile over in the sports world - the man we anointed the best basket ball player who ever existed - even before he'd played a single professional game - has finally gotten into a real life NBA finals where he hasn't been able to make a single shot in a pressure situation.

Now, I get that this "Can-do attitude" is a charming American attribute. But to extend it ad absurdam to the idea that anyone without any training or experience or education can do anything with a little pluck, charm and great legs is simply idiotic in a stupid television program - or in a professional sports league - but it's nothing less than terrifying in the political arena.

I realize that the "Founding Fathers" were all cool can-do types too. But they were cool can-do types who were real life soldiers and bankers and students with years and years of real life education where most them learned to read and write - not just in English - but in Latin and Greek, and most of them spoke French so that they could read all the source documents in the original languages they were written in so that when they wrote their own documents - like the Declaration of Independence and the Constitution- they actually made sense!

Anyway, I know that was a long time ago, and people aren't like that anymore. But the problems we need to solve now are just as complex as the problems these Founding Fathers had to solve - but the characters we're electing to solve them unfortunately aren't.

Thursday, June 9, 2011

No, sorry, that's not a photo of Anthony Weiner's penis. For that you'll have to tune into Fox News, which running stories around the clock, a week after this Scandal of the Century broke. Of course, I agree, there's no story quite so important as a congressman sending photos of his penis to a woman. And his name is Weiner. Get it? Penis - Weiner. Get it?

This phallic-looking graph is actually a representation of the way the total debt market had DOUBLED five times since 1970 - when the US went off the gold standard that tied monetary creation to the amount of gold stored in government coffers.

In spite of all the lip service right now that our fine politicians and pundits are giving to the debt crisis, we are right on schedule to double again in the next five years.

Total Debt Market is all debt - not just government but also corporate debt - financial sector debt - and private debt. It just keeps doubling.

Why? Because there is no money to pay it back. All we can do is default or borrow more to pay the interest.

Get it? That's a good one too. Default or borrow more just to pay the interest? Get it?

And here's the biggest joke of em all: That doesn't even include the QUADRILLION dollars of debt derivatives that the Financial Sector ha created in the last 20 years. Get it? Ha Ha. Get it?

Wednesday, June 8, 2011

Ben Bernanke had this to say at the International Monetary Conference yesterday:

"The U.S. economy is recovering from both the worst financial crisis and the most severehousing bust since the Great Depression, and it faces additional headwinds ranging from theeffects of the Japanese disaster to global pressures in commodity markets. In this context,monetary policy cannot be a panacea. Still, the Federal Reserve's actions in recent years havedoubtless helped stabilize the financial system, ease credit and financial conditions, guardagainst deflation, and promote economic recovery. All of this has been accomplished, Ishould note, at no net cost to the federal budgetor to the U.S. taxpayer."

Apparently, Dr Bernanke, is counting on the fact that most Americans can't read, don't bother to read, or don't understand what they read. For example, Reuters ran this story a few days ago:

Fed balance sheet hits another record size

Thu May 26

NEW YORK (Reuters) – The Federal Reserve's balance sheet expanded to a record size in the latest week, as the central bank bought more bonds in an effort to support the economy, Fed data released on Thursday showed.

The purchase was part of its $600 billion program, dubbed QE2, aimed at stimulating investment and economic activity.

The balance sheet -- a broad gauge of Fed lending to the financial system -- expanded to $2.759 trillion in the week ended May 25 from $2.742 trillion the prior week.

If not the taxpayer, then Who exactly is paying for all these purchases of bad debt the Fed is loading up onto its balance sheet?

Who paid for the other 5 trillion dollars funneled to the banks during the crash of 08?

How come nobody bats an eye when this public official lies to us in such a bizarrely bald-faced fashion?

Tuesday, June 7, 2011

If I lend you a dollar does that mean I now have an extra dollar I can lend to someone else?

Yes, you read the question right. It makes no sense. Yet this nonsense is the basis of all bank accounting.

The idea is that the more you lend the more you have so you can lend even more.

If everyone behaved that way the economy would fall apart in ten minutes.

But only banks are allowed to behave that way. Is it any mystery that banks fall apart? And when they do the government takes tax payer money and gives it to them. Because they are "too big to fail."

This is the problem of the advanced economies. It is so simple that nobody can get their mind around it. It is so stupid that nobody can even believe it exists.

But the problem becomes compounded a million times over by the entire layer of Financial Engineers (Yes: GOLDMAN SACHS) who then come in to hide the problem of insolvent banks by disguising debt as currency swaps and other complex 0ff-balance sheet derivatives - for which they receive massive compensation from the banks insolvent coffers.

The entire charade becomes uncovered when the Debt Derivative complex becomes so enormous and unwieldy (Currently estimated at around a QUADRILLION DOLLARS) that it can no longer hide the problems of entire countries like Greece, Ireland, Portugal, Spain.

Just as it could no longer hide the insolvent banking sector that crashed in the US 2 years ago.

This is where the Central Banks step in. They have only one job. Their job is this: TO TAKE TAXPAYER MONEY AND FUNNEL IT TO THE INSOLVENT BANKS.

That's the job. It's so simple, so stupid (from a working financial perspective) that nobody can believe it's true.

The problem is that THERE IS NO MORE TAX PAYER MONEY. It's all been spent a thousand times over by the profligate governments. Now the central banks are spending FUTURE TAX PAYER MONEY.

Crazy, right? It can't be that stupid, could it? It must be more complicated than that. BUT IT"S NOT.

That's the sad sad truth. It's just that simple. And nobody can believe it's true. But there's one way to find out: Audit the Fed.

Oh, that's right you can't. They won't let congress do that. I wonder why not.

Monday, June 6, 2011

We all know that those of us who sell gold think it's a great buy. And even a bunch of cartoonish television commentators like Larry Kudlow have jumped on the bandwagon.

Similarly we all know that money managers at the big shill firms like Merril Lynch are desperately trying to keep the clients out of gold and in debt and equities - because that's where they get their kickbacks.

But what about those who reached the pinnacle of the investment structure but have since left to start their own advisory firms? Those bright enough, and experienced enough to understand the vast interconnected financial structure, but no longer need to espouse any particular corporate line?

Guys who will never make it to your television screen.

Kenneth Courtis (pictured above) ran Goldman Sachs Asia, until recently, when he opened up his own Hong Kong based investment firm. In a recent interview he summed up his view on gold and debt thusly:

Kenneth Courtis (former vice-chairman, Goldman Sachs (Asia) and co-founder of Themes Investment Management): Some investors increasingly see gold as a “currency”. The popping of what I call the “Bush Bubble” took the world economy to the edge of a vast catastrophe and it also effectively smashed the global economic and financial equilibrium which had been in place since the Bretton Woods system finally imploded four decades ago. We do not know today what the new equilibrium will be. What we do know is the mushrooming of debt was not only central to the US bubble; it is also one of the dominant characteristics of the Japanese and many European economies. Even then, with the exception of Japan and a few others, public sector debt is a small part of the “Himalaya” of debt bearing down on the world economy. Vastly more problematic for most developed economies is private sector debt – particularly in the banking and household sectors. Private sector debt is above 300 per cent of GDP in many OECD economies. Many investors looking at this situation rationally conclude that the probability of debt of this magnitude being paid back, dollar-for-dollar, is extremely low. The logical conclusion is to invest in hard assets, which will hold their value as paper assets are devalued through inflation. As this process unfolds, there will be an increasing clamour for gold to play a new role in the world monetary system. I would see then gold playing a reference role rather than an anchor to a new global monetary system.

Sunday, June 5, 2011

Is everyone who gets into the government plied with alcohol and given a lobotomy before they get to speak on Television?

And that goes double for economic and political pundits. (not to mention reality show, game show, entertainment show hosts and contestants.)

Right now it seems that for these sodden idiots there are only two phrases that can be parroted when discussing the economy: Tax Cuts for the wealthy (for republicans). More spending (for Democrats).

You'd think this was a joke. It's not. Tom Kean's show on Bloomberg aside - (because people discuss ideas there) - both sides - and what a terrible shame it is that there are only 2 sides when discussing complex multifaceted issues where there are, in fact, dozens of sides - both sides have a single idea that they shout at each other like reality show morons.

Let's look at these "ideas":

Tax cuts work in a surplus economy with very high tax rates. Reagan's cuts worked to a point because tax rates at 90% were draconian, and we had a surplus which nobody much cared at the time if we squandered.

Now top tax rates are closer to 37% and we have the biggest deficit of any country in the history of the world. Can you see that the two cases are different - and may require different more nuanced solutions?

Spending: The Federal reserve bank/Us government made a terrible error in the early 1930's by tightening heavily in the face of a massive contraction. Since then Republicans and Democrats alike have advocated massive easing in the face of any contraction. It has worked to ease contractions - meanwhile building the debt steadily and relentlessly to the point where it is so massive that any more easing (spending) simply adds to the debt and no longer has any positive effect on the economy.

You see, past performance is not a guarantee of future results. Why? BECAUSE CONDITIONS CHANGE.

Nobody in government is discussing the conditions we have now, because it seems nobody can think well enough to analyze them.

The problem we have now is an insolvent world banking system because of a quadrillion dollar debt-derivative complex that's sucked all the productive capital out of the world economy. It's not easy to fix. But if we're not even talking about it in the political arena chances are it won't get fixed.

Instead they're all acting like a bunch of drunken clowns competing for television exposure.

It's not funny. Because one small policy mistake right now and we will have a depression.

What are the chances of a policy mistake occurring under the watch of any one at all who might become president this next election? Or before that?

Saturday, June 4, 2011

“Debt restructuring looks inevitable. Yet it is also easy to see why it would be a nightmare, particularly if, as Mr Bini Smaghi (of the European Central Bank) insists, the ECB would refuse to lend against the debt of defaulting states. In the absence of ECB support, banks would collapse. Governments would surely have to freeze bank accounts and redenominate debt in a new currency. A run from the public and private debts of every other fragile country would ensue. That would drive these countries towards a similar catastrophe. The eurozone would then unravel. The alternative would be a politically explosive operation to recycle fleeing outflows via public sector inflows.

What this means is simply this: Greece is broke. Ireland, Portugal, Italy and Spanin are in the same boat. Either the European Central Bank continues to bail out these national banks with European taxpayer money, or the Euro Zone will dissolve and all the broke banks will go under. This is Martin Wolf's view. He is universally regarded as the expert on the European Debt situation.

US DEBT:

Gav Kael a metrics measuring outfit writes this:

“As we have highlighted in recent Dailies, our Velocity Indicator has been heading south rather rapidly. At first glance, this might appear surprising as there are few signs of stress in the financial system today: corporate spreads are decently tight, IPOs continue to roll out, and the VIX remains low."

“The answer is very simple and it is linked to the recent underperformance of banks almost everywhere. Indeed, with short rates still low everywhere, and yield curves positively sloped, we are in the phase of the cycle when banks should be outperforming. The fact that they are not has to be seen as a concern.

One of our ‘rules of thumb’ is that if banks do not manage to outperform when yield curves are steep, the market must be worried about the financial sectors’ balance sheets."

What this means is this: Despite the 7 trillion dollars the Fed has poured into the banks, none of that money if flowing through into the economy, and still the balance sheet of the banks have not been repaired. This is Gaev Kael's conclusion. They are a highly respected econometrics firm.

There is a worldwide banking crisis in full bloom. The fact that the world's central banks have been able to stem this crises temporarily with taxpayer money (your money and my money) has not cured the crisis. It's postponed it.

I don't know why people aren't more upset that their tax dollars are still going to pay bonuses of bankers who have run their banks into the ground.

Friday, June 3, 2011

One thing I know for sure is that most people are worried. Whether or not you feel you have a grasp on what's happening in the economy you're probably feeling somewhere between uneasy and anxious.

As we approach the end of Quantitative Easing - which is the government program in which they print money to give to the banks to support all risk assets such as the stock market, the bond market, the housing market and the commodities markets - all economic indicators are pointing towards a stalling economy.

Factory orders are declining. Manufacturing is declining. Retail sales are declining. Personal income adjusted for inflation is negative. Employment is double dipping. We get the employment report later this morning. It it's weak - look out below in the risk markets.

The effect of diving risk markets is to wipe out massive amounts of wealth forthe average American - who keeps his and her money largely in risk assets.

Because gold is a currency - and one that can not be printed. It's supply is finite and known. Only the demand can change. Thus the price can fluctuate but in a much less volatile way than other currencies where the supply can be abused for political purposes - ie to create debt.

Yes the futures market is thin and volatile. But the underlying physical market for large quantities of gold is already separating itself from the futures market. It's wise to buy real physical gold and ignore the vagaries of manipulated paper.

Look at the chart above. (click on it). You can see gold can fall a long way (about 100 dollars) and still not even violate the 1 year chart support line. It's not likely to even fall that far on a deleveraging correction.

Why?

Because Central Banks are accumulating and will put a floor under and fall. Hopefully we get one over the next few day.

Thursday, June 2, 2011

Above is a reverse of a William and Mary gold coronation medal (18 grams) minted in 1689 by the artist John Rottiers to celebrate the coronation of William and Mary. 505 pieces were minted in gold and given out to the dignitaries attending the celebration. Many more were minted in silver and distributed to judges, members of parliament, and divers notables. Copper examples were tossed to the rabble lining the streets for the coronation procession.

Back when gold was money Gold medals were minted by court artists to commemorate all momentous occasions.

Only a year ago this same exact same medal went unsold in a French auction with an estimate of $5000. Yesterday it sold in an LA auction for over $10,000.

Only a year ago on television Larry Kudlow, a TV personality on a game-show like economic revue show mocked gold as the dumbest of all investments. A barbarous relic unworthy of attention by serious investors and economists. Yesterday Larry Kudlow announced on the same television program that the dollar should be returned to a gold standard, and that gold linkage was the only way to tame the debt problem.

Now my point is not the Larry Kudlow has suddenly become someone who understands anything at all and should be accordingly respected. He has spent all his life in politics and like all political animals (yes I know what Aristotle said about that) the only thing he understands is popular sentiment. But, like all political animals able to command their own TV program, he is extraordinarily attuned to popular sentiment.

Thus, my point with both examples above is that Gold is now creeping into the popular imagination. This is not a culmination. It is the beginning of what gold analysts call PHASE 2 of the gold bull. Phase 1, was where "smart money" ahead of the curve accumulated. It was a stealth phase that saw gold move from about 300 to 1500 over ten years.

Phase 2 is when institutional money begins to get involved. When central banks become net buyers rather than sellers. When TV commentators and politicians begin to discuss things like a return to the gold standard, which they had mocked in the recent past. It's happening now.

Somewhere ahead lies PHASE 3. That's when everyone you know wants to own some gold. When everyone you know talks about gold the same way they talked about internet stocks during the internet boom. When mindless Hollywood celebs and mindless politicians talk about their personal savvy gold investing. When Donald Trump has a new show called the Gold Apprentice, and he claims he left real estate not because his company went bust but because he was always secretly dealing gold.